Finding opportunities where others fear to tread
Contrarian investing is not a bad thing.
Buying a company that sells credit data to banks may seem counterintuitive when fears of a recession are high. But that’s exactly the sort of company that appeals to Platinum’s inquisitive and contrarian investment approach.
In this video, I discuss the role of macroeconomics in investing and how times of increased uncertainty can create mis-pricings and opportunities.
I'll also talk in-depth about a company that we feel has a better outlook given it's already been through its recession-like period - TransUnion (NYSE: TRU).
Edited Transcript
There's this question around macroeconomics and the degree you should allow macro affect your investment decisions. And the problem you face as an investor is both the economy and the stock market are large, complex, non-linear systems. So what that means is the same inputs won't always produce the same end results. Forecasting error is high and you can really only work in probabilities when thinking about macro.
A great example of that today is interest rates. Historically, large increases in interest rates have been accurate predictors of a recession as the higher borrowing cost and tighter availability of credit would eventually weaken activity and lower corporate profits.
However, interest rates have now been high and in restrictive territory for about 12 months, but the economy remains resilient and employment is strong. So the question is, is it different this time and interest rates are less important, or is it simply the fact that more patience is required for high interest rates to take their toll?
Now the answer on these big picture questions is: You can't really know. But what is clear is there is a lot more uncertainty around the range of outcomes. So the question is, how do we invest in this more uncertain environment?
The first thing to remember is that uncertainty often leads to stocks being mis-priced. And these mis-pricings create opportunities. So we want to take advantage of that because even if the economy weakens from here, there are stocks that have already had their recession and there will be companies that continue to grow in spite of the underlying environment.
So an example of a business today that's already had its recession is TransUnion (NYSE: TRU). TransUnion sells data to banks who use that data to decide firstly, who they want to lend to, and then how to price those loans. TransUnion's stock price fell 50% as high interest rates have seen US mortgage applications fall 70% from their peak.
And it was this fear around cyclicality that created the opportunity to buy. But from this starting point, the outlook for TransUnion is quite favourable. Demand for its data from new customers outside of the banking industry continues to grow. From a base of down 70%, mortgage applications are probably likely to improve from here. And if rates are cut in response to a weaker economy, this would actually help TransUnion rather than harm them. And it's these type of ideas that can do well in most environments going forward is where we are focusing our investments today.
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Disclaimer: This article has been prepared by Platinum Investment Management Limited ABN 25 063 565 006 AFSL 221935 trading as Platinum Asset Management (“Platinum”). While the information in this article has been prepared in good faith and with reasonable care, no representation or warranty, express or implied, is made as to the accuracy, adequacy or reliability of any statements, estimates, opinions or other information contained in the article, and to the extent permitted by law, no liability is accepted by any company of the Platinum Group or their directors, officers or employees for any loss or damage as a result of any reliance on this information. Commentary reflects Platinum’s views and beliefs at the time of preparation, which are subject to change without notice. Commentary may also contain forward-looking statements. These forward-looking statements have been made based upon Platinum’s expectations and beliefs. No assurance is given that future developments will be in accordance with Platinum’s expectations. Actual outcomes could differ materially from those expected by Platinum. The information presented in this article is general information only and not intended to be financial product advice. It has not been prepared taking into account any particular investor’s or class of investors’ investment objectives, financial situation or needs, and should not be used as the basis for making investment, financial or other decisions. You should obtain professional advice prior to making any investment decision. You should also read the latest Platinum Trust® and Platinum International Fund (Quoted Managed Hedge Fund) product disclosure statement and target market determination before making any decision to acquire units in the funds, copies of which are available here.
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Graduating as dux of Finance from university and a brief stint as an accountant at Grant Thornton gave Clay the grounding to deconstruct financial statements. Having started as an analyst at Platinum in 2006, Clay went on to manage the Platinum European Fund in 2009 and become sector lead of the financials and services team. Clay currently manages the Platinum Unhedged Fund, as well as co-manages Platinum’s Global strategies alongside Andrew Clifford. He is the leader of the technology and communications sector team.
Clay was promoted to co-Chief Investment Officer in April 2021.
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Graduating as dux of Finance from university and a brief stint as an accountant at Grant Thornton gave Clay the grounding to deconstruct financial statements. Having started as an analyst at Platinum in 2006, Clay went on to manage the Platinum...
Expertise
Graduating as dux of Finance from university and a brief stint as an accountant at Grant Thornton gave Clay the grounding to deconstruct financial statements. Having started as an analyst at Platinum in 2006, Clay went on to manage the Platinum...
Expertise
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